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Economic Substance Regulations

​ As part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union Code of Conduct Group on Business Taxation, the UAE issued Economic Substance Regulations (Cabinet of Ministers Resolution No. 31 of 2019), (the “Regulations”) on 30 April 2019. Guidance on the application of the Regulations was issued on 11 September 2019 (Ministerial Decision No. 215 of 2019), and Cabinet Decision No. 58/2019 on the Determination of Regulatory Competencies lists the Regulatory Authorities tasked with the administration and enforcement of the Regulations. Amendments to the Regulations were made by Cabinet of Ministers Resolution No. (57) of 2020 on 10 August 2020, and updated Guidance was issued on 19 August 2020 (Ministerial Decision No. (100) of 2020 The Regulations require UAE onshore and free zone companies and certain other business forms that carry out any of the defined “Relevant Activities” listed below to maintain and demonstrate an adequate “economic presence” in the UAE relative to the activities they undertake (“Economic Substance Test”).  

Relevant Activities:
  • Banking Business
  • Insurance Business
  • Investment Fund management Business
  • Lease - Finance Business
  • Headquarters Business
  • Shipping Business
  • Holding Company Business 
  • Intellectual property Business (“IP")
  • Distribution and Service Centre Business​


The Regulations apply to financial years commencing on or from 1 January 2019. Entities that are within the scope of the Regulations are required to submit an annual Notification form to their Regulatory Authority , and complete and submit to the same Regulatory Authority an Economic Substance Report within 12 months from the end of their financial year (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019). An entity is not required to meet the Economic Substance Test and file an Economic Substance Report for any financial period in which it has not earned income from a Relevant Activity or if it meets the conditions for being exempt. A Notification form will need to be submitted regardless. Failure to comply with the Regulations can result in penalties, spontaneous exchange of information with the Foreign Competent Authority (as defined in Article 1 of the Regulations), as well as other administrative sanctions such as the suspension, revocation or non-renewal of the entity’s trade license or permit.









A. The Economic Substance Regulations

1. Why has the UAE introduced Economic Substance Regulations?

The UAE introduced Economic Substance Regulations to honour the UAE’s commitment as a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS), and in response to a review of the UAE tax framework by the EU which resulted in the UAE being included on the EU list of non-cooperative jurisdictions for tax purposes (EU Blacklist). The issuance of the Economic Substance Regulations on 30 April 2019, and the release of Guidance on the application of the Regulations on 11 September 2019, was a requirement for the removal of the UAE from the EU Blacklist on 10 October 2019. In consultation with the OECD and the EU, amendments to the Regulations were made by Cabinet of Ministers Resolution No. (57) of 2020 on 10 August 2020 (the Regulations), and updated Guidance was issued on10 August 2020 (Ministerial Decision No. (100) of 2020 The Regulations ensure that UAE entities that undertake certain activities (Licensees - see Question [5]) are not used to artificially attract profits that are not commensurate with the economic activity undertaken in the UAE.

2. When do the Regulations enter into force?

The Regulations are effective from 1 January 2019, and apply to financial years starting on or after 1 January 2019. Example 1: A UAE company with 1 January 2019 - 31 December 2019 financial year: First assessable period would be 1 January 2019 - 31 December 2019. Example 2: A UAE company with 1 April 2019 - 31 March 2020 financial year: First assessable period would be 1 April 2019 - 31 March 2020. No need to comply with the Regulations for the period 1 January 2019 - 31 March 2019. Example 3: A UAE company with 1 July 2018 - 30 June 2019 financial year: First assessable period would be 1 July 2019 - 30 June 2020. No need to comply with the Regulations for the period 1 July 2018 - 30 June 2019.

3. Who are the “Regulatory Authorities”?

The Regulations are administered by the Regulatory Authorities listed in Article 4 of the Regulations, and set out below:​

Ministry of Economy Dubai Aviation City / Dubai South Hamriyah Free Zone Authority (HFZA) Media Free Zone (Abu Dhabi)
Central Bank of the UAE Jebel Ali Free Zone (JAFZA) / DP World Ajman Free Zone Authority Abu Dhabi Airports FreeZone
Insurance Authority Dubai World Trade center Ajman Media Free Zone Autority MASDAR
Security and Commodities Authority International Humanitarian City (IHC) Ras Al Khaimah International Corporate Centre (RAK ICC) Abu Dhabi Global Market (ADGM)
Dubai Airport Free Zone TECOM (Dubai Development Authority) Ras Al Khaimah Economic Zone (RAKEZ) Abu Dhabi Ports
Dubai Healthcare City Authority Dubai Multi Commodities Centre (DMCC) Fujairah Free Zone Fujairah Creative City
Dubai International Financial Centre (DIFC) Dubai Silicon Oasis Umm Al Quwain Free Zone (UAQ) Sharjah publishing city
Meydan Free zone Sharjah Airport (SAIF) Zone Khalifa Industrial Zone Abu Dhabi (KIZAD) Sharjah media city
International free zone authority Fujairah RAK Maritime City Sharjah Healthcare City The Sharjah Research, Technology and Innovation Park

The Regulatory Authorities are responsible for monitoring compliance with the Notification and reporting obligations under Regulations, identifying possible Licensees, validating information submitted, determining whether a relevant entity meets the requirements to be treated as exempt and sharing information with the UAE Federal Tax Authority and the UAE Ministry of Finance.

4. Who is the “National Assessing Authority”?

The assessment and determination on whether a Licensee has economic substance in the UAE is made by the Federal Tax Authority, in its capacity as the “National Assessing Authority” under the Regulations.


Page last updated : 17/09/2020 1:47 PM